Medicare Options for Employees and Retirees
By Brian Gilmore | Published June 24, 2026
Question: What are the primary Medicare decision points for employees and retirees after reaching age 65?
Short Answer: In most cases, employees at age 65 have the option to remain in active coverage, enroll in Medicare, or both. Most age 65+ retirees should enroll in Medicare immediately upon retirement to avoid potential coverage gaps and late enrollment penalties.
The Basics: Medicare Eligibility, Enrollment, and Resources
Individuals generally become eligible for Medicare at age 65. Earlier eligibility may occur based on disability, ALS, or end-stage renal disease (ESRD). CMS data highlights that approximately 90% of Medicare beneficiaries are age 65 and over.
Medicare offers three primary enrollment windows:
Initial Enrollment Period (IEP): A seven-month period around the 65th birthday.
Special Enrollment Period (SEP): An eight-month window after active employer coverage ends. COBRA does not extend this SEP.
General Enrollment Period (GEP): Runs from January 1 to March 31 each year, with coverage beginning the first day of the month after enrollment for individuals who didn’t sign up for Medicare when first eligible.
Employers should generally avoid providing individualized Medicare advice. In some cases, employers work with outside vendors to provide custom Medicare-related information and assistance. Otherwise, employers should consider directing employees to a variety of useful resources available to the public:
For more details:
Medicare Options for Age 65+ Employees
In most cases, employees at age 65 can choose among employer-sponsored coverage, Medicare, or both. However, employees at small employers generally need to enroll in Medicare upon reaching age 65.
The Medicare Secondary Payer (MSP) Rules Drive Decisions
The MSP rules for Medicare entitlement based on age (i.e., reaching age 65) apply to employers with 20 or more employees for each working day for at least 20 calendar weeks in either the current or preceding calendar year. In general, the MSP rules provide that the employer-sponsored group plan pays primary for any employee or spouse also enrolled in Medicare. The rules also prohibit the employer’s plan from taking into account the Medicare status of a current employee or spouse, meaning the plan must provide the same benefits under the same conditions to Medicare-eligible employees.
For more details:
Employer Subject to MSP Rules (20+ Employees): Multiple Choices Available
If the employer is subject to the MSP rules, age 65+ employees can delay Medicare enrollment by relying solely on the employer’s coverage as an employee and utilizing the Medicare SEP upon retirement. Employees also have the option to waive employer coverage and rely solely on Medicare, or to have dual coverage with the employer plan paying primary and Medicare paying secondary.
Employer Not Subject to MSP Rules (Under 20 Employees): Enroll in Medicare
If the employer has fewer than 20 employees and therefore is not subject to the MSP rules, employees generally should enroll in Medicare when first eligible during their IEP. In these situations, the employer’s plan can (and typically will) pay as if Medicare is the primary payer, even if the employee does not enroll in Medicare. As a result, delaying Medicare enrollment can leave the employee responsible for significant out-of-pocket costs. Employees may choose to rely solely on Medicare or to maintain both Medicare and employer coverage (with Medicare paying primary and the employer plan paying secondary).
HSA Eligibility: An Important Factor for Many Age 65+ Employees
Age 65+ employees enrolled in a high deductible health plan (HDHP) may choose to delay Medicare enrollment until the SEP in retirement to maintain HSA eligibility. Enrollment in any part of Medicare (including the generally premium-free Part A hospital coverage) is disqualifying coverage that causes an individual to lose HSA eligibility. Employees who want to continue contributing to an HSA should therefore delay Medicare enrollment until retirement.
For more details:
Summary of Medicare Options for Age 65+ Employees
Employer is Subject to MSP (20+ Employees)
Option | Coverage Arrangement | Primary Payer | HSA Eligibility | Pros | Cons |
|---|---|---|---|---|---|
Employer Plan Only | Remain enrolled in the employer plan and delay Medicare enrollment until retirement (SEP). | Employer Plan | ✓ Eligible (if covered by HDHP) | - Continue making HSA contributions | - No Medicare coverage until retirement |
Medicare Only | Waive employer coverage and enroll in Medicare during the IEP. | Medicare | ✗ Not Eligible | - Access to Medicare | - May be more costly than employer coverage |
Both Employer Plan and Medicare | Remain enrolled in the employer plan and enroll in Medicare during the IEP. | Employer Plan | ✗ Not Eligible | - Dual coverage for services covered by both options | - Additional cost to enroll in both options |
Employer is Not Subject to MSP (Under 20 Employees)
Option | Coverage Arrangement | Primary Payer | HSA Eligibility | Pros | Cons |
|---|---|---|---|---|---|
Medicare Only | Waive the employer plan and enroll in Medicare during the IEP. | Medicare | ✗ Not Eligible | - Access to Medicare | - May lose access to providers available in employer plan |
Both Employer Plan and Medicare | Remain enrolled in the employer plan and enroll in Medicare during the IEP. | Medicare | ✗ Not Eligible | - Dual coverage for services covered by both options | - Additional cost to enroll in both options |
Employer Plan Only | Remain enrolled in the employer plan and delay Medicare enrollment until retirement (SEP). | Medicare (even if not enrolled) | ✓ Eligible (if covered by HDHP) | - Potential to remain HSA-eligible | - Secondary coverage only in most cases |
For more details: When Can I Sign Up for Medicare?
Issues with Medicare Secondary Payer Status for Employees: The CMS GHP Demand Letter
Section 111 of the SCHIP Extension Act of 2007 created reporting requirements to ensure proper administration of the MSP rules in employer-sponsored group health plans (GHPs). The information collected is used to identify and recover claim payments incorrectly made with Medicare as primary coverage where MSP rules require the GHP to be primary.
The CMS GHP Demand Letter informs the employer plan sponsor of a Medicare overpayment made for a participant in the employer’s GHP for which the GHP should have paid primary, and it demands repayment for that overpayment. CMS GHP Demand Letters are routine, and employers should expect to receive them periodically. These letters are primarily a carrier/TPA coordination of benefits issue, with heightened scrutiny because Medicare trust funds are adversely affected by the claims processing error.
Employers receiving a CMS GHP Demand Letter should work with the carrier or TPA to ensure the claims reprocessing/repayment is handled properly—or alternatively to confirm that the letter was sent in error and dismissed pursuant to a valid defense. The carrier or TPA generally takes the lead in resolving the matter.
For more details:
Medicare Options for Age 65+ Retirees
Employees who decline Medicare enrollment in the IEP upon reaching age 65 have the opportunity to enroll in Medicare upon retirement. These age 65+ employees generally need to enroll in Medicare immediately in the SEP upon the loss of active employer-sponsored coverage to avoid multiple serious potential issues.
Issue 1: The Eight-Month Medicare Special Enrollment Period is Not Extended by COBRA Enrollment
Age 65+ Medicare-eligible employees generally qualify for an eight-month Medicare SEP upon retirement (or any termination of employment) that begins the earlier of the month after employment ends or the month after active coverage ends. COBRA (even where subsidized) does not extend this eight-month SEP because it is not considered active coverage based on “current employment status.” Failure to enroll in Part B during the eight-month SEP based on loss of active coverage—regardless of COBRA enrollment—can therefore cause the inability to enroll in Part B until the GEP, which may cause a significant coverage gap.
Retirees who fail to enroll in Part B during the eight-month SEP may also be subject to a late enrollment penalty equal to 10% of the Part B premium for each full 12-month period they were eligible but did not enroll. In most cases, this higher premium applies for as long as the individual remains enrolled in Part B.
Issue 2: COBRA Generally Pays Secondary to Medicare (Regardless of Enrollment)
Age 65+ retirees should also avoid relying solely on COBRA because it may provide only secondary coverage. In general, the MSP rules require that the employer-sponsored group health plan always pay primary to Medicare for individuals in “current employment status,” which applies to active coverage.
Retirees enrolled in COBRA are not receiving employer-sponsored coverage based on “current employment status.” In the COBRA context where the MSP rules do not apply and Medicare is the primary payer, the employer plan can assume the Medicare payment rate and pay only as secondary coverage for any individual who is eligible for COBRA. This is true regardless of whether the individual is actually enrolled in Medicare.
For example, if an individual’s services would have been covered as primary by Medicare if the participant were enrolled in Part B, COBRA coverage may pay only the amount that a secondary plan would pay. For individuals not enrolled in Part B, that leaves the amount that would have been paid by Part B as a coverage gap for which the participant is responsible.
Issue 3: The COBRA/Medicare Timing “Geissal” Rule
Where a retiree seeks to maintain both COBRA and Medicare, COBRA can terminate early if the retiree enrolls in Medicare after electing COBRA. A retiree who enrolls in Medicare before electing COBRA is not subject to early termination of COBRA caused by the Medicare enrollment. In other words, retirees who want to both enroll in Medicare and remain on COBRA must be careful to enroll in Medicare prior to electing COBRA.
This timing rule stems from the 1998 U.S. Supreme Court case Geissal v. Moore Med. Corp., which is the only U.S. Supreme Court case to address COBRA rights. Since the U.S. Supreme Court’s ruling, the IRS has updated the COBRA regulations to confirm that only enrollment in Medicare after electing COBRA can cut short the qualified beneficiary’s COBRA rights (Treas. Reg. §54.4980B-7, Q/A-3).
For more details:
The Employer’s Role in the SEP: The Medicare Form CMS-L564
Retirees applying for Medicare Part B in the SEP will generally do so via Form CMS-40B either by paper (pdf or html) or online through the Social Security Administration. Medicare.gov includes a useful basic overview of this enrollment process on its “Enrollment Forms” site.
As part of the application process for the SEP, the age 65+ retiree must complete the Form CMS-L564 “Request for Employment Information” and provide it to the employer. The Form CMS-L564 is used for proof of group health plan coverage based on current employment (i.e., active coverage), which is needed to process the Medicare enrollment application.
The employer is responsible for completing Section B of the form with the following information:
Whether the individual was covered under the employer’s group health plan;
The date such coverage began;
Whether such coverage has ended;
The date such coverage ended; and
The timeframe that the employee worked for the company.
For more details: The Medicare Form CMS-L564 for Employers
Summary of Options for Age 65+ Retirees
Option | Coverage Arrangement | Primary Payer | HSA Eligibility | Pros | Cons |
|---|---|---|---|---|---|
Medicare Only | Decline COBRA and enroll in Medicare in the SEP. | Medicare | ✗ Not Eligible | - Simplest approach | - May lose access to providers available in employer plan |
Medicare + COBRA | Enroll in Medicare first, then elect COBRA. | Medicare | ✗ Not Eligible | - Additional | - Likely higher overall cost compared to Medicare with Supplement (or Medicare Advantage) |
COBRA Only | Decline Medicare and rely solely on COBRA. | Medicare | ✓ Eligible (if covered by HDHP) | - Potential to remain HSA-eligible | - Secondary coverage only in most cases |
For more details:
Relevant Cites:
DOL Model COBRA Election Notice:
Can I enroll in Medicare instead of COBRA continuation coverage after my group health plan coverage ends?In general, if you don’t enroll in Medicare Part A or B when you are first eligible because you are still employed, after the initial enrollment period for Medicare Part A or B, you have an 8-month special enrollment period to sign up, beginning on the earlier of
The month after your employment ends; or
The month after group health plan coverage based on current employment ends.
If you don’t enroll in Medicare Part B and elect COBRA continuation coverage instead, you may have to pay a Part B late enrollment penalty and you may have a gap in coverage if you decide you want Part B later. If you elect COBRA continuation coverage and then enroll in Medicare Part A or B before the COBRA continuation coverage ends, the Plan may terminate your continuation coverage. However, if Medicare Part A or B is effective on or before the date of the COBRA election, COBRA coverage may not be discontinued on account of Medicare entitlement, even if you enroll in the other part of Medicare after the date of the election of COBRA coverage.
If you are enrolled in both COBRA continuation coverage and Medicare, Medicare will generally pay first (primary payer) and COBRA will pay second. Certain COBRA continuation coverage plans may pay as if secondary to Medicare, even if you are not enrolled in Medicare. For more information visit https://www.medicare.gov/medicare and-you.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).
Brian Gilmore
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.
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